Mich. Panel Backs Major Tax Shift

A blue-ribbon panel appointed by the Michigan Board of Education has
called for fundamental changes in the way the state finances and
governs its public schools.

If approved by the legislature and voters, the panel's plan would
shift primary responsibility for school funding from localities to the
state by reducing property taxes by nearly 40 percent and increasing
the state sales tax to offset the lost local revenue.

It also would create a new state-aid distribution formula to
equalize spending between affluent and poor districts and a new
permanent "education trust fund" to finance school-improvement
projects.

In addition, the blueprint calls for a mandatory core curriculum for
grades 1 through 12; performance standards for schools; state-board
authority to take control over "educationally bankrupt" districts; and
a statewide "freedom of choice" program that would permit parents to
enroll their children in any public schools in their district.

Financing and Quality

"Michigan has declined from its position as a national leader in
providing quality education," the panel noted in its Sept. 22 report.
"There is clearly a need to re-examine both the financing and quality
of education in Michigan."

Testimony from 14 school superintendents representing a wide array
of communities "painted a picture of great financial and
educational-opportunity inequities between districts," the panel said.
Its review of the current tax structure, it added, "highlighted the
need for change and a bold new approach to school finance."

"Any reform of school finance must be accompanied by an effort to
improve the quality of education," the panel continued. "No single
approach to improving school quality will work by itself."

"From the state level we can attempt to compel quality, to stimulate
it, to supplant it, or to subsidize it--or we can hope to have it
percolate up from below," the members said. "We are more likely to
succeed if we try to meld all these approaches creatively into a
systematic effort to improve educational equity and excellence."

Formal Adoption

The state board is expected to formally adopt the report by the
42-member Michigan School Finance Commission at its Oct. 13
meeting.

In addition, leaders of the state House and Senate are to meet this
week to consider the formation of a joint legislative committee
that8would translate the plan into a bill that could be acted on before
the current session ends in December.

Key members of the legislature's education committees said last week
that their goal was to place a constitutional amendment approving the
tax changes before voters on the November 1988 ballot.

The plan faces major hurdles, however, including opposition from the
politically powerful Michigan Education Association, which believes
that the tax provisions treat businesses too favorably.

Gov. James J. Blanchard has not yet taken a formal position on the
report, but State Treasurer Robert Bowman, his chief spokesman on
financial matters, has previously described the tax proposal as a
"shift and shaft" for homeowners.

Noting that the new federal income-tax code retained deductibility
for property taxes but not for sales taxes, Mr. Bowman said the change
would effectively cost property owners $300 million more than they are
currently paying in taxes.

Broad Cross-Section

The decision to release the 37-page report came on a vote of 37 to
3, with 2 not present. It culminated six months of work by the finance
panel, which was co-chaired by Phillip E. Runkel, the former state
school superintendent, and Edgar Harden, the former president of
Michigan State University. The panel itself represented a broad
cross-section of interests, including key leaders from business, labor,
education, the legislature, and local government.

"This has been a frustrating and rewarding experience," said Mr.
Harden. "Frustrating in the sense that we were not able to achieve
greater consensus as to how best to resolve the financial issue.
Rewarding in the knowledge that each individual member of this
commission gave it his or her 'best shot' in an effort to achieve the
charge we had been given."

The panel's mandate from the board was to devise a plan to address
the growing financial disparity among districts, which is largely a
consequence of the state's heavy reliance on property taxes as a chief
source of school funding. Currently, Michigan schools derive about 63
percent of their revenues from local sources, far above the national
average of 43.8 percent.

The state's high rate of property taxation gave rise to a citizens'
''tax revolt" in the 1970's and early 1980's and, more recently, to a
revolt among many of the state's leading industries. (See Education
Week, April 22, 1987.)

Finance Recommendations

Specifically, the report's section on school finance:

Recommends the approval of a constitutional amendment that would
change several aspects of the tax system.

First, it would raise the state sales tax from 4 cents to 6 cents.
Second, it would lower the maximum property-tax rate for schools and
all other services from 50 mills to 38 mills.

Third, it would permit school boards to levy a flat 18-mill
residential- and agricultural-property tax, which could rise to a
maximum of 25 mills with voter approval. The current statewide average
millage rate for school-operating purposes is 32 mills.

Fourth, it would set a flat 23-mill levy statewide on all
commercial, industrial, utility, and development property, with all
revenues earmarked for the state school-aid fund. And fifth, it would
prevent county tax-allocation boards from lowering the current levels
of millage allocated for schools below their 1987-88 levels.

The panel estimated that under this plan state aid to schools would
rise from $1.6 billion currently to $4.3 billion, a 168 percent
increase. The total amount spent on precollegiate education from all
sources--about $6.1 billion this year--would remain stable, however,
because of the offsetting decrease in revenues from property taxes.

Calls for the legislature to revise the power-equalization formula
for distributing aid to districts. Under the current formula, about 74
percent of the districts collect less than $3,000 in state and local
revenues per pupil. That proportion would drop to 3 percent of all
districts under the new formula.

Urges the legislature to create a permanent education trust fund
separate from the school-aid fund. The fund would receive an initial
contribution of $200 million, about half of which would come from
retaining half of the estimated $170-million "windfall" the state
expects to receive due to the change in the federal tax code.

The panel recommended that the funds be used for several purposes,
including programs for "at risk" preschoolers and lowering
pupil-teacher ratios in kindergarten through 3rd grade.

Recommends that the legislature permanently fix the proportion of
revenues transferred from the general fund to the school-aid fund at
its current level, about 10 percent.

Although concerns over finance8provided the impetus for the panel's
creation, questions of school quality quickly emerged during the course
of its deliberations.

"It became clear during our first meeting that we would have to
address more than just the taxation issue," said State Senator Dan L.
DeGrow, a panel member and chairman of the Senate Education Committee.
"We realized that voters would never accept the new taxes if it was
business as usual for the schools."

Among the panel's recommendations on school quality:

The legislature and state board should define and mandate a core
curriculum for the entire K-12 system. The mandate would include
promotion and graduation standards and elective courses that districts
would be required to offer.

Michigan has had a long history of local control over education;
currently, the state only requires that students complete a half-unit
of civics to graduate from high school and that districts offer a
course in health.

The legislature and board should set performance standards for
schools, with a focus on student test scores and retention rates. The
results of such monitoring should be made widely available to the
public.

The board should be empowered to declare districts failing to meet
such standards educationally bankrupt. It should have the option of
placing in state receivership either an entire district, schools within
a district, or programs within schools.

The board should create a statewide program to disseminate knowledge
about successful educational practices. The programs should be
patterned after agricultural extension services for farmers.

The state "must also foster changes" resulting in greater
decisionmaking autonomy at the school-building level. Although the
panel did not recommend a specific course of action, it said the result
should be the approval of policies "tailored to the characteristics and
needs of the individual school."

Wherever possible, districts should be encouraged to permit parents
to enroll their children in any public schools within their districts.
Promoting greater parental choice in education has the "potential for
unleashing much of the creative potential of our schools," the panel
said.

The state, it added, should require that "school money follows the
children and that the choice of a particular school carries with it the
resources to provide the child's education."

The state should provide financial incentives "for schools that
succeed in bringing actual pupil performance above their predicted
levels.'' The major portion of state aid, it said, "should focus on
schools with the largest number of pupils likely to fail."

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